April 29, 2020

The Acorn Method: Henrik Werdelin

BarkBox co-founder and founding partner of Prehype, Henrik Werdelin. Henrik is also the author of the new book, The Acorn Method: How Companies Get Growing Again. Part philosophy, part process, this book draws from Henrik’s own experience both at his own companies and as an advisor to companies like Coca-Cola, Lego, and Verizon.

In this episode, Henrik explains how businesses should think about growth as a process of expanding out like a forest rather than up like a tree.

Nikki Van Noy: I am very excited to hear a little bit about your career up to this point. It seems to me that you’ve done some cool things.

Henrik Werdelin: I guess so. I think they sound cooler than maybe they felt when I was doing it but I have done a lot of different things.

Nikki Van Noy: Talk to me specifically about BarkBox, how did you come up with that idea, and what is the trajectory been like form your perspective?

Henrik Werdelin: Well, we started Bark, I guess almost eight years now and at the time, it wasn’t really supposed to be that big of a business. My cofounders and I were kind of riffing on something to do almost like a side hustle and we were all three big dog lovers and wanted to do something that makes our own dogs happy and then so we came up with basically finding the best products and then putting them in a box and then sending it to everyone.

At the time, we didn’t really know that this was a huge industry and we didn’t really know how big it could become and now eight years later, we are serving millions of customers and we have hundreds of staff. We are one of those very fast-growing companies here in the US and doing all sorts of products and services. From dog toys to dental products, food, dog carts, and what else you can think of to make a dog happy.

Nikki Van Noy: Your side hustle has turned out okay.

Henrik Werdelin: The side hustle turned out.

Having a Personal Passion

Nikki Van Noy: Since you have experience in the startup space, I’m interested in what your experience here bares out. I love that you just started it because it was something that you’re into, and you love dogs. Is there something to that as far as startups go?

Henrik Werdelin: You know, I do think that it makes it easier if you are seeking something that you’re passionate about because there’s just so many long days and nights where you have to work on it and if you don’t have the energy, you can’t find the energy from somewhere then it’s a very long time and I think a lot of people kind of throw in the towel at one point.

I don’t think necessarily it has to be, “just do your passion.” I’ve been involved in growing businesses that I felt were intellectually very interesting, but I didn’t have the same kind of personal passion. It wasn’t the same personal passion as making dogs happy. I think there’s a lot of entrepreneurial people sitting in companies and doing something which is not as emotional as making dogs happy. I think you can be passionate about just growing those businesses too.

Nikki Van Noy: When you put it that way, I really can’t think of a better job than yours, making dogs happy.

Henrik Werdelin: It is a luxury to be able to get customer emails and it’s just a picture of a dog very excited about the product we made. We’re spoiled on that side.

Systematic Process = Success

Nikki Van Noy: In your time both with BarkBox as a startup and other startups, talk to me about some of the biggest lessons that you’ve learned.

Henrik Werdelin: Well, in many ways, the book [The Acorn Method] describes a lot of those and for me, it is that there is both an art, but a sort of science building something out of nothing, building from scratch. I think one big insight is that if you’re a little bit systematic about how you are conducting your business, then you have a better chance of success.

I think there’s an idea that when people are building something new, they just go all in and they work hard and then they come on top or not.

What I’ve learned is that it’s really about experimentation and it’s about having a thesis, and then developing the muscle that allows you to test something quickly.

If it works, then you double down on it, and if it doesn’t work, then you ruthlessly move on to the next thing.

New Project Principle: Default Debt

Nikki Van Noy: Ruthlessly moving on to the next thing sounds difficult to me.

Henrik Werdelin: Yeah, specifically because I think people who are building new things get very passionate about their project. There’s also this inherent issue that if you are somebody who built something new, often, what you are good at is to think of a potential future that doesn’t exist yet.

You have to pitch that to people, you have to pitch that to investors or your boss or your spouse or your staff and sometimes when that thing doesn’t work, or when the data doesn’t seem to support the thesis you have, it can be very complicated to accept that. So I work with a principle I call “default debt”.

That’s a little system that I’m trying to put in place for myself. That only allows me to allocate a certain amount of time or money to a new experiment. If I don’t see the data supporting the thesis, I kill it instead of trying to continue it.

Nikki Van Noy: That strikes me as a very clever safety net to check your emotions and passions and investment and how all of that can play into this.

Henrik Werdelin: I think this will resonate, specifically, for people who work in larger companies. But it is so difficult to get an organization to do something new, that by the time that you pitched everybody, you feel like now you have to make it a success. What big companies sometimes do is they just throw more money at it, and sometimes more money is not necessarily the problem.

Money can’t solve that problem and, a lot of times, you get into this evil spiral where you finally get something approved and get the green light to move forward with and suddenly you realize, this data doesn’t support the idea. Then you don’t have any way to go back.

The Acorn Method

Nikki Van Noy: I’ve sort of backed us into this point, but I would love you to describe to listeners what exactly “The Acorn Method” is.

Henrik Werdelin: Yeah, “The Acorn Method” is both a philosophical stand and a practical guide for how companies can learn how to build new products and services or new companies again.

The reason why I use that methodology was that I got very inspired by how Amazon, Google, Apple, and Bark were becoming very good at becoming not just a single product company but understanding how they needed to build different types of products and services when their first product had matured.

I was looking around to try to find a good way to explain it. I stumbled over this book called ‘The Secret Life of Trees’, and it’s a forestry book that has nothing to do with business. But suddenly it dawned on me. That trees for over 300 million years have learned that at one point when a tree grows up, it can’t just grow taller or bigger, you have to invent a system for regeneration that runs into a forest instead of just a bigger tree.

Suddenly, it dawned on me. That if you look at what Apple has done over the last 30 years, or what Google is doing successfully. They all have a core business and they identified fertile ground around it. Then they invent the equivalent of acorns and drop those acorns in the fertile ground around them, using their root system to support these new entities to grow up and become powerful.

Suddenly, I feel like, for me, it unlocked a way to explain a system for growth that trees have had for 300 million years. But that wasn’t documented and there wasn’t any good vocabulary for us in the business world.

Nikki Van Noy: It’s amazing, I love it when an idea that’s sort of nebulous in my mind, crystalizes because of something that has nothing to do with that idea in the first place but encapsulates it perfectly.

Henrik Werdelin: Yeah, I think you’re right. A lot of innovation. A lot of ideas come in the fringes, right? At the intersection of different kinds of industries and different sciences.

Three Core Elements of The Acorn Method

Nikki Van Noy: What I love about this is you’ve taken this idea and tethered it down to a process that businesses can follow as they look to build their forest. Can you talk to me about what that looks like in action?

Henrik Werdelin: Yeah, I guess the three core elements of the acorn method is: first, you need to figure out as a company what is the equivalent of your acorn. What is the team, and what is the system that you put in place to build something from zero to one.

A lot of organizations have good tech teams, marketing teams, business development teams, and procurement teams. But they are optimized to make sure your existing business just grows bigger.

First, you need to figure out your regeneration system, what is your equivalent of the acorn. For me, it’s about the type of talent you employ to do those things and the methodology that you use to deploy it.

For example, it’s different to grow a sprout than it is to build another branch. The first element is talent and the system around that. The second is where do you have permission to play, where is the fertile ground around your business.

To give you an example, you have to have permission from your customers to play in new areas. I have a thought experiment that sometimes brings that point home.

If I told you that Nike was making a new hotel, I think you would have a visual of what that hotel might look like. But, if I told you that Hilton is making a new shoe, you probably wouldn’t know what that would look like.

Some companies have brand permission to go into other spaces around them, and that is one of the components that you need to look at, the opportunity spaces around the tree.

The third one, which is almost more important than the other ones is, how do you make sure that the core organization supports this new relationship. How do you make sure that it doesn’t become too big and overshadow this sprout, but at the same time, how do you make sure that it facilitates with nutrients, benefits, and resources that will make this new sprout grow quicker? A system that is very difficult for a lot of organizations to also build.

Those three components, the talent, the opportunity space, and the systems of support are what I describe in the book.

Brand Permission

Nikki Van Noy: I was intrigued by what I believed you called brand permission. Is that the phrase you used?

Henrik Werdelin: Yeah.

Nikki Van Noy: My question around that is this idea of “brand permission”, and using your example that the Nike hotel would conjure up an image to mind whereas a Hilton shoe would leave customers wondering what that was all about.

Is there any way for companies to sort of build toward brand permission from early days with the idea or at least leaving themselves the room to build a forest over the long run, or is this something that has to happen more organically than that?

Henrik Werdelin: I think the answer is both. The core of what companies that often have permission to become a forest instead of a large tree are that they are trying to solve a problem rather than being a utility.

What I mean by that is I’ll take my company Bark as an example.

When we set out to build that company, the core thing that we wanted to do is make dogs happy. That has always been the ethos of what we are trying to do.

We were never a box subscription business. Sometimes people ask me, “Well when are you building cat box?”, I think that question is the underlying question. They see our company as a company that is very good at putting things in a box and sending that to people. But our core competencies are not doing that. We are good at that since we have done that millions and millions of times but what we see ourselves good at is making dogs happy.

So our next product was a dental product and a dog park and all of these other things because that is what we understand how to do. I think the reason why we could do that, and the reason why our customers allowed us to do that, was that they had always felt that what we were set out to do was to solve our problem instead of becoming a utility. Other companies are very good utility companies, and they do something very specific very well. Then they can go in and provide that utility to a lot of different verticals, but for us, it was about making the dogs happy.

Don’t Just Provide Utility

Nikki Van Noy: That is so interesting to me because as you were saying that it occurred to me well, of course, you guys could have gotten away presumably with going in the other direction of making a cat box and a gerbil box and a parrot box and going from there, in a different scenario.

So I’d like to land there for a second, and I understand this is hypothetical, but do you think that had you taken that alternate route, it would have worked for you or not? Would something have been lost if the forest had grown in that direction?

Henrik Werdelin: I think it is increasingly difficult to just do that because I think a 21st-century company is all about the strength of the relationship it has with its customers. These days it is difficult to create a long-lasting business that doesn’t obsess about the customer’s problem and saying we see that as our business to come up with anything we can to help you solve that.

If you are just providing utility at one point, people might lose the utility, and therefore then they also lose the relationship.

I will give you an example, one of the companies that I’ve helped advise is Dow Jones and the Wall Street Journal. I think they cleverly see themselves as a financial information company, not just a newspaper, so if your core business was to print stuff on paper, then obviously you would be facing a pretty uncertain future as the world is moving away from that.

But if you see yourself as somebody who is very good at taking very complicated information and then distilling and synthesizing that into something that decision-makers can use daily. Then suddenly your core business is not printing 300 words in a newspaper format, your core business is that and that has allowed Wall Street Journal, and its parent company Dow Jones to move into a compliance business.

Into the events business, into a lot of businesses around what a professional person needs. I think it is increasingly difficult if you’re just a utility provider. You need to be the world’s best at that specific utility, and sometimes even if you are that, then the world changes around you.

Nikki Van Noy: That makes a lot of sense. This topic strikes me potentially particularly relevant right now as we’re in this pandemic. Which has had a lot of economic fallout, and there is uncertainty ahead of a lot of businesses.

Changing Your Mindset to Grow

Nikki Van Noy: Do you have any thoughts that relate to this idea of using an acorn to grow a forest that you feel particularly apply to business owners who might be looking for potential ways out of this [pandemic], understanding that things are going to look different than they did before?

Henrik Werdelin: Yeah, I didn’t know about this pandemic when I wrote the book. That would be freaky.

Nikki Van Noy: That would be another book.

Henrik Werdelin: But there was a sense of change happening in the business environment, even without this pandemic, and that was because if you take existing companies, you suddenly have a lot of the big technology companies that are moving into a lot of new industries. You have a lot of startups that are trying to disrupt very lucrative parts of existing businesses, and then you have macro-environment changing.

You know, people using computers more. And so The Acorn Method for me is very much a book about how do you find new ways to grow in uncertain times. I think it is about trying to create a vocabulary for the leaders in an organization that sees themselves as hunters more than just farmers, as explorers than as exploiters. I think you need both in your organization but over the last 20, 30 years there’s been a general trend.

Of just doing what you did very well, and making sure that you did that in many markets, and then buy your competitors, and was the ethos of how you were building growth.

I think ingenuity, entrepreneurship, experimentation, and all of these other tools of the explorers and the hunters will be required for your organization to keep growing. We haven’t had a lot of methodologies and terminologies to even describe that.

The terminology has been very reserved for the startup world, which is awesome, but you can’t really take startup methodology and directly apply that to a big organization. You have to adapt it to that kind of culture and to the problems that they have. The Acorn Method is probably even more relevant now after we are seeing what nature can throw at us than it was before.

Nikki Van Noy: Yeah, the timing is kind of uncanny, and it is also interesting to me to say that you are sensing a shift coming regardless of this. That makes sense.

Henrik Werdelin: Yeah, I definitely think that technology had changed to the requirements of the organization and I think it had disrupted a lot of things as I described in the book. When you were creating a direct-to-consumer company like a Bark 30 years ago, I would have needed an R&D team, a factory, a big warehouse, and a big ERP (enterprise resource planning) system and probably a deal with a big retailer and that was before I got started.

And now, I could 3D print an idea. I could get it made overseas and shipped relatively cheap. There are these things called 3PLs, which are basically like warehouses that you just connect with through the internet, and so you don’t even have to really own a warehouse. Then you could sell stuff directly through Facebook.

And so all of those elements that you need to set up a business just wasn’t there before, which is great for an entrepreneur. But if you are a company that has been doing this for 30, 50, a hundred years and suddenly a Danish person could come in and disrupt your toy business, then that is not good, and then you need to learn to do that yourself.

Nikki Van Noy: It strikes me listening to you talk, while this is certainly a scary time in a lot of ways, we’re probably actually going to see a lot of really cool things come out of it in the long run.

Henrik Werdelin: Yeah, I think it is a scary time for established companies. Because I do think that there is a lot of new stuff happening and I agree that it is also a very opportune time. I mean, like I think the reason why it is important to have this conversation is because I think that the world is a better place, the more products and services are being offered by a broader spectrum of suppliers.

And so I am concerned for existing companies because if you just look at how long they seem to be surviving, that time is getting shorter and shorter. And I am not sure that I think it is a good thing if we all get our products and services from only three or four companies. I think having hundreds of companies to choose from is something that is important and I think startups play a role in that. I think the big tech companies play a role in that, but I also think it’s important that some of these companies have been around for a 100 years that are building good values and employ a lot of people. It is important that they stick around, and I think for them to stick around, they need to start to understand that they need to build new capabilities. That is what I am trying to describe in the book.

Nikki Van Noy:Henrik, thank you so much for joining me today. Again, the book is The Acorn Method: How Companies Get Growing Again. Henrik, where else can listeners find you?

Henrik Werdelin: I am active on the internet, as you might imagine. If you go to Twitter, my last name is Werdelin. I post quite a bit there, otherwise, I am on LinkedIn, and I teach through a network of entrepreneurs that I created, called prehype, and there is also more information about all of this stuff.

Nikki Van Noy: Awesome and I am guessing everything else aside you’re worth following because there has to be so much good dog content coming from you.